Saturday, January 7, 2006

Former Wal-Mart Executive Likely to Plead Guilty to Fraud and Tax Charges

The saga of Thomas Coughlin, former vice chairman of Wall-Mart and hunting buddy of company founder Sam Walton, appears to be coming to a close with reports that he will enter a guilty plea to wire fraud and tax evasion charges.  The issue first flared in March 2005, when Coughlin was removed from the board and his retirement benefits terminated by the company when an internal investigation revealed that over a number of years Coughlin had engaged in a number of relatively small personal transactions that were billed to Wall-Mart as business expenses, totaling upwards of $500,000.  The purchases included Wall-Mart gift cards, hunting equipment and rifles, and even a personal computer for Coughlin's son.  A plea by Wall-Mart vice president Robert Hey, who reported to Coughlin, detailed the fraud and referenced an unidentified Wall-Mart executive as the recipient of the benefits, so it was only a matter of time before Coughlin was indicted.

When the story first broke, Coughlin claimed that the transactions related to a secret anti-union campaign he conducted on behalf of Wall-Mart, a plausible story given the company's reputation in that area (among others these days).  While a plea deal does not preclude Coughlin from asserting that position, it will require him to affirm that he defrauded Wall-Mart and that the benefits constituted personal income that should have been reported.  It will be difficult to assert at sentencing that his conduct was for the benefit of the company.  A Washington Post story (here) discusses the potential plea agreement. 

A case like this highlights a point seen in a number of white collar crime prosecutions when a high-level, and well-paid, executive or professional engages in misconduct that involves seemingly trivial amounts.  Is it worth it?  Wall-Mart's 2004 proxy statement (here) discloses that for 2004 Coughlin earned $983,894 in salary, an incentive payment of $2.8 million, a restricted stock award of $2 million, and other compensation (i.e., perks not including the ones he stole) of $252,082, which in addition to his ownership of 948,832 shares, which are worth over $40 million.  The annual dividends on his stock holdings alone probably exceed the amount of the fraud he will admit, so in the end it's not the money.  Instead, I think it is a sense of entitlement, and a belief that one is not doing anything wrong because the person is not a criminal like those people who rob a 7-11.  We all believe we're ethical and honest, although sometimes it takes a little extra convincing to get out the door in the morning. (ph)

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» Former Wal Mart Executive Likely to Plead Guilty from Loss Prevention Blog
Tom Coughlin, former CEO of Wal Mart, is expected to plead guilty to wire fraud and tax evasion. Coughlin was once featured in a Loss Prevention Magazine March/April 2002 cover story about his rise from Loss Prevention to CEO. Coughlin's... [Read More]

Tracked on Jan 16, 2006 9:23:52 AM

» Former Wal Mart Executive Likely to Plead Guilty from Loss Prevention Blog
Tom Coughlin, former CEO of Wal Mart, is expected to plead guilty to wire fraud and tax evasion. Coughlin was once featured in a Loss Prevention Magazine March/April 2002 cover story about his rise from Loss Prevention to CEO. Coughlin's... [Read More]

Tracked on Jan 19, 2006 10:14:15 PM

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